Total initial claims processed for the week of January 9 were up substantially in the state while easing in the rest of the US.

In California, initial claims in the regular program were down sharply 32.1% over the prior week, while the reauthorized PUA claims jumped just under 230%. In the national totals, regular claims were down 13.6%, while PUA claims rose 48.7% as California accounted for over half of the new claims. Combined, total claims were up 8.6% in California and eased 0.9% in the US.

The latest week’s results show California’s performance again diverging from the other states. The other states have largely stabilized at a somewhat higher level than in the second half of 2020, while California remains on an upward trend.

While the stricter stay-at-home orders have begun to ease in a few counties, the underlying Tier restrictions continue to encompass virtually all of the workers currently unemployed in the state, either as officially counted in the unemployment statistics and those who left the labor force compared to the pre-crisis numbers in February 2020. The most recent tier allocations for the week of January 19 from Department of Public Health show no changes from the prior week, with just under all of the unemployed from November residing in counties under the most restrictive Tier 1 provisions. Movement out of those restrictions—either through shifts in tier status or revision of the tier restrictions better reflecting ongoing improvements to the risk data—will be essential for the state to move to recovery especially for the lower wage workers hit hardest by the state’s current approach. Due to its pattern of job recovery from the prior recession that began in 2008, Los Angeles Region continues to experience a strongly disparate impact from the current state restrictions and consequently likely faces a more extended recovery period ahead.

The chart above is based on the 1.5 million workers officially classified as unemployed in November. Adding in those leaving the labor force raises the total closer to 2.2 million.

Being able to move from the more restrictive tier allocations remains largely tied to the pace of vaccinations. California, however, remains well behind the other states in administering the doses, ranking above only Virginia and Alabama in the most recent data from Centers for Disease Control. While California has received an additional 2.3 million doses since the first week of January, injections have increased only 1.1 million. While this number exceeds the 1 million additional shots pledged by the governor, there is considerable uncertainty around whether it was achieved in the 10 day commitment under the pledge or within 12 days due to yet another administrative failure, this time due to substantial data errors in the state’s tracking systems. Regardless of the timeline of the specific commitment, the state remains well behind the national average in its vaccination rate, while a number of states are much closer to administering the injections as doses come in. While a comparable overly-bureaucratic approach to allocating the vaccines led to some providers discarding subsequently unusable shots in New York, similar reports do not appear to be surfacing in California due in part to providers choosing to follow good sense over the state’s initial rules.

While the continuing claims backlog was brought nearly under control in the most recent data from EDD, the backlog for new initial claims now exceeds all prior levels by a substantial amount. Backlogged continuing claims as of January 13 were down to 12% of their level from the week prior. Backlogged initial claims, however, were up by 148%. Combined, total backlogged claims were at 810,750, or 57% higher than the prior week. EDD defines backlogged initial claims as those "applications for benefits that take more than 21 days to issue a first payment or to disqualify the individual, regardless of if the claimant or EDD need to take some kind of action." Backlogged continuing claims are defined as a "subset of all individuals who received at least one payment and are now waiting more than 21 days for further processing of payment or disqualification."

In the most recent data from EDD, California paid out a total of $113 billion in benefits under all the UI programs through the period March 7 through January 9. While the various emergency programs including PUA and extended payments under both the regular program and the new PEUC component are paid from federal dollars, the regular UI program relies on the state’s UI account funded by employer contributions per employee. When the balance of that fund runs out, benefits continue to be paid through borrowing from the federal trust account.

The most recent data from US Department of Labor indicates California’s outstanding loans from the Federal Unemployment Account were $18.4 billion, or 39% of the total amount owed by 19 states. This amount does not include accumulated interest which under the second COVID relief bill is currently waived through March 14. As reported previously, EDD’s current projections are that this amount will grow to $48 billion by the end of 2021, although the actual amount will depend heavily on how quickly employees, especially lower wage employees are able to return to work under the state’s restrictions.

In the previous recession that began in 2008, the state UI fund reached a negative balance of $11.1 billion, and did not return to a positive balance until the first quarter of 2018. Even under the current conditions, the deficit is nearly twice that amount. The UI program at its essence was developed as insurance against economic cycles and individual firm cycles. Its funding structure was not designed to insure against the current circumstances which are a government-ordered series of shutdowns intended to cope with a public health emergency. The governor’s proposed budget acknowledges these circumstances by including $555 million general fund to cover the anticipated interest payment that will be due in September 2021.

The funding challenges are further complicated by the rising indications of fraudulent payments under the current programs. The initial revelations came after several district attorneys filed charges alleging $1 billion in fraud by state prisoners, followed by a $2 billion estimate coming from the state’s payments contractor. Our analysis, however, concluded the state should have been prepared for fraudulent payments reaching at least $8.5 billion just based on prior history with this issue, and likely much higher given the rapid expansion of the program, the avalanche of claims, and the increased economic payouts coming from both expansion of amounts accessible under the traditional program plus a number of new untested benefit expansions specific to the current crisis. In the most recent estimate, identified fraud to date is likely at the $9.8 billion level through last September as the state’s lax controls attracted activities by organized crime elements in Russia, China, and other countries.